Bottlenecks and operational uncertainty
The transport sector faces significant challenges. Despite apparent strong growth in container shipping in the first quarter of 2024, the market remains vulnerable due to geopolitical tensions and operational issues. Delays, conflicts, and ongoing crises, particularly in the Middle East, are causing a capacity shortage in the logistics sector. The coming months are crucial for the stability of the global freight market.
New data shows that the number of containers transported in March increased by 5.1%. Over the entire first quarter, growth was 9.2%. This may sound like strong growth, but we need to see it in context. The freight market has been very weak in recent years. In 2022, global freight volumes declined by 4.5%, and in 2023, growth was only 0.5%. The high growth rates in 2024 thus signify a return to normal levels after an exceptionally weak period.
Compared to the first quarter of 2019, the last "normal" year before the pandemic, the total growth in the number of shipped containers is only 8%. This amounts to an average annual growth of 1.5% over the past five years.
Ship Capacity and Bottlenecks
In the same five years, shipping companies have commissioned many new vessels, resulting in a capacity increase of over 25%. Some of this overcapacity was absorbed by slow steaming, which also led to reduced fuel consumption and lower CO2 emissions. The distance that cargo has to travel has also increased, primarily due to rerouting around South Africa because of the crisis in the Red Sea. Consequently, freight volumes measured in distance (TEU*Miles) increased by 27.5% in the first quarter of 2024 compared to 2019. This means all the new ships are needed, and they must sail faster to meet the demand.
However, in March and April 2024, the weekly capacity from Asia to Europe decreased by 9% compared to last year. This puts increasing pressure on the available capacity on this route. Problems in the Red Sea are also causing bottlenecks in some of the largest transshipment ports such as Singapore, Jebel Ali, and Tangier.
Geopolitical Tensions
Problems in the Middle East are escalating. After a brief pause, the Houthis have resumed and even expanded their attacks into the Indian Ocean. Iran has seized a container ship in the Strait of Hormuz, and the Houthis have threatened to attack ships in the eastern Mediterranean.
An additional operational issue arose in early May when Turkey decided to cease all trade with Israel. This will particularly affect transshipment flows in the eastern Mediterranean directly. It is important to note that whenever transshipment flows are drastically altered, it leads to increased pressure on transshipment terminals. This can result in longer waiting times for ships entering the port, effectively removing capacity from a market that already lacks overcapacity while rerouting around Africa. This, in turn, impacts rate developments.
Conclusion
The sea freight sector is currently balancing between significant opposing forces. On one hand, there is an increase in ship capacity; on the other, geopolitical, and operational disruptions are causing an effective capacity loss. The coming months are crucial and will depend on further developments in the Middle East.
